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Leonsis tapped to help steer Groupon

The Lowell Sun

Updated:
03/03/2013 06:39:19 AM EST

By Thomas Heath

The Washington Post

CHICAGO -- Washington mogul -- and Lowell native -- Ted Leonsis was named co-chief executive of Groupon, the troubled daily-deals website that fired its chief executive and founder Thursday after a string of disappointments culminated in a big earnings miss this week.

Mason, 32, issued a non-traditional letter after the action, in which he at first said he was leaving to spend more time with his family.

"Just kidding -- I was fired today," he said in his missive to the staff. "If you're wondering why. . . you haven't been paying attention."

Groupon announced the change, including a search for a new chief executive, on Thursday after the stock market had closed.

Leonsis, who founded a new media company, Redgate Communications, that was acquired by America Online in 1994, did not respond to emails and phone messages. The 1973 Lowell High graduate did release a statement through the company that said the following: "Groupon will continue to invest in growth, and we are confident that with our deep management team and market-leading position, the company is well positioned for the future."

Groupon's stock price was decimated after the company announced late Wednesday that its fourth-quarter loss had widened to $81.

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1 million from a $65 million loss the previous year.

Groupon shares dropped 20 percent Thursday, closing at $4.53. That price is down from $20 per share a year ago. They recovered somewhat on Friday, rising 57 cents to close at $5.10.

The shake-up caps more than a year of upheaval for Groupon and the daily-deals industry, which less than two years ago was considered as transformative to local commerce and entertainment as Amazon.com was to retail.

The daily-deals business got off to a fast start around 2010 as companies such as LivingSocial and Groupon started peddling steep discounts to spas, restaurants and shops in subscribers' neighborhoods.

But by 2012, that growth began to slow, in part because customers felt bombarded by emails from both the big sites as well as scores of copycats. Groupon and LivingSocial began searching for other revenue streams.

"Deals are a piece of the online promotions puzzle, but they sit alongside traditional things," said Peter Krasilovsky, a daily-deals analyst with BIA/Kelsey in Chantilly, Va. "They are not really a stand-alone entity as we thought. It's not a new paradigm for advertising."

Groupon's fortunes are expected to have a significant effect on Washington-based LivingSocial, the No. 2 daily-deals company and Groupon's chief rival. Privately held LivingSocial has closely watched Groupon's progress.

A spokesman for LivingSocial declined to comment.

The two companies have much in common. Leonsis is one of the chief investors in Groupon, and his close friend and business partner, AOL founder Steve Case, was one of the early investors in LivingSocial.

Both continue to have significant stakes in the companies and are also partners in other investments through a local venture-capital fund called Revolution Ventures. Leonsis, 56, also sits on the board of directors of American Express and is the majority owner and chairman of Monumental Sports & Entertainment, the holding company that owns the Washington Wizards basketball team, Washington Capitals hockey team and the sports franchises' home arena, Verizon Center.

Groupon was once named the fastest-growing company in history by Forbes magazine. But several high-profile missteps, including a lengthy and contentious initial public offering, restatements of earnings and high-level staff defections, damaged the company's image.

Mason took responsibility for some those missteps Thursday.

"The events of the last year and a half speak for themselves," he said in the letter. "As CEO, I am accountable."

Mason had been seen as the creative force behind the company and still controls nearly 20 percent of Groupon's voting stock.

"Mason added very little value to a company which essentially became an online department store," Krasilovsky said. "He was a lifestyle champion, and he started Groupon as something to help people figure out what they wanted to do on the weekends."

Mason's control of the company stemmed from his 20 percent share of the voting stock, which in addition to Lefkofsky's shares and voting shares held by another key investor, Brad Keywell, amounted to a block 57 percent control. Lefkofsky's voting shares may have been instrumental in the executive leadership.

Mason acknowledged in his departing letter to employees that the company needed some change.

"You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I'm getting in the way of that. A fresh CEO earns you that chance," he wrote. "I'll now take some time to decompress (FYI I'm looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I'll figure out how to channel this experience into something productive."

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